To become successful in the market long term, you have to become a student of the market. You have to know yourself, and match your personality with a particular time frame, and strategy. For one, I feel more comfortable holding on to stocks for a short period taking advantage of the many short term momentum bursts that many stocks exhibit. A typical stock that goes up 100% or more in one year will make a bulk of those gains in a handful of days. The rest of the time it consolidates by either trading sideways or down.
I’m not very comfortable guesstimating what is going to happen six months from now fundamentally, let alone a year from now. I rather focus my attention on finding a bunch of 5-20% winners than finding five 100% winners. As of 9/16/2015 we have 1,311 stocks above $2 that trade on average over 100k shares daily that are up year to date. Only 66 out 1,311 (5%) stocks are up 100% or more, 785 (60%) are up between 10% and 100%. The averages state that it is easier to find a handful of 10-20% winners than it is to find 100% winners. And, most 100% plus winners started with an initial 10% move unless it was bought out. A serious of small winners will allow you to swing for the fences when you find a stock that has a game-changing catalyst that can potentially make a huge move.
“The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market. 40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%. 80% of the gains are a function of 20% of the stocks. –The Ivy Portfolio
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